Innovation in the 21st Century: Harnessing the Power of Intellectual Property and Antitrust Law

This week, I am taking part in a “blog symposium” hosted by Prof. Josh Wright (U. Texas Law) on his blog (Truth on the Market).  The symposium focuses on a new book by Prof. Michael Carrier titled Innovation in the 21st Century: Harnessing the Power of Intellectual Property and Antitrust Law (Oxford 2009).  In the book, Carrier identifies a number of problems with the antitrust and IP laws – and then proposes solutions.  Carrier’s book moves in the same vein as other recent law professor books critiquing IP Policy such as the Meurer and Bessen book Patent Failure.  Here, however, Carrier spends less time proving that a problem exists and somewhat more time identifying solutions. 

Early posts include:

·         Reverse Payment Settlements: Carrier suggests that reverse payments patent settlements should be made presumptively illegal or even per se illegal.  These payments have become somewhat common where a patent holder will pay a generic to stay off the market and not further challenge the patent rights. Prof. Dan Crane (Cardozo) argues that rule does not make sense because there is no direct link between the direction of the settlement payment and the potential anticompetitive social harm of the settlement.  [LINK]

·         Patents Blocking Antitrust Action: Carrier suggests that the existence of IP rights should not grant a company a free-pass to take otherwise anticompetitive actions.  In his post, Prof. Phil Weiser (Colorado) agrees “IPRs should not displace antitrust oversight.”  Weiser argues that this is especially true in the area of software patents: “Given that software patents are controversial to begin with, awarding the recipient of a patent on an application programming interface or communications protocol a get-out-jail free card is hard to justify.” [LINK]

·         Mergers in the Innovation Market: Carrier suggests stronger antitrust regulation of mergers in the “innovation market” – as opposed to more traditional merger analysis that focuses only on product lines.  In his post, Geoff Manne (LECG) points to the biggest hole in Carrier’s book – that he chooses sides without enough evidence either way.  In this case, Manne notes that “we don’t know about the relationship between market structure and effect, and error costs are high.” From Manne’s perspective, innovation markets are so dynamic that Government antitrust intervention will necessarily arrive at the wrong answer too late and do harm. [LINK]

·         Standard Setting and Patent Holdups: Carrier identifies the “patent holdup” situation as having a particularly troublesome antitrust concern because it looks like attempted monopolization – especially where the patent holder pushes an SSO to adopt a standard that would infringe.  Wright argues that such antitrust liability would be quite problematic. [LINK]


13 thoughts on “Innovation in the 21st Century: Harnessing the Power of Intellectual Property and Antitrust Law

  1. 12

    Rather than making reverse payment settlements illegal, it would be more effective to just revise the Hatch-Waxman Act to remove the incentive to enter into such settlements. Pharmaceutical patent holders generally enter pay-for-delay settlements with the first generic challenger because these settlements bottleneck the generic process by preventing FDA from approving later-filed ANDAs. The 180-day exclusivity forfeiture provisions allow the first-filer to hold on to his exclusivity even after entering a pay-for-delay settlement, so long as the settlement doesn’t stipulate anything about the patent being invalid or not infringed. A simple change to the Hatch-Waxman Act – having the first-filer forfeit their exclusivity period upon entering ANY settlement agreement with the patentee – would open the door to other generic challengers and disincentivize patentees from entering into such settlements in the first place.

  2. 11

    Re: “By making settlements per se illegal, Congress is forcing patentees to litigate.”
    No, if properly drafted, it would not affect NORMAL patent litigation settlements at all. Only highly ABNORMAL patent litigation settlements in which defendants are paid by patent owners [instead of the reverse payment of a normal settlement] to agree to keep competitive products off of the market [to provide an increased period of exclusivity] as well as to not further challenge the validity or infringement of the patent.

  3. 10

    “Is this what we want to encourage?”

    It depends on who you mean by “we”. If you mean “we” consumers, who get to pay extra b/c the patentee is improperly milking his patent, then yes. Which “we” are you speaking for?

  4. 9

    By making settlements per se illegal, Congress is forcing patentees to litigate. Is this what we want to encourage?

  5. 8

    Re: “there is no direct link between the direction of the settlement payment and the potential anticompetitive social harm of the settlement.” [and further academic discussions of “comparative social costs”]
    This is not just a private antitrust issue. Where is the difficulty in finding a direct and large effect on all taxpayers in increased Medicare drug costs from the very large cost differences between major patented drugs and their generic equivalents withheld from the market by a paid agreement in restraint of trade?
    In what patent litigation OTHER than on drug patents do patent owners pay their infringers large sums to settle, rather than vice versa? What does that demonstrate?

  6. 7

    Oh come on – reverse payments to keep a competitor out is a clear abuse of the system, and is completely against the intent of the legislature when they passed ANDA – you cannot seriously argue the “title”.

    Point two is a bit of a nonsequitor becuase patents do not block antitrust actions. Patents grant a very limited monopoly to what is claimed, but that is all.

    Mergers in the innovation market – the regulators are supposed to evaluate the IP landscape as part of mergers so an actual functioning government takes care of point three.

    Point four is a good one and is ripe for abuse, luckily market competitors have been aware of this so I have not seen it as a huge issue.

    So, IMO only point one is a true abuse that is currently a problem, and there are bills in Congress to fix it.

  7. 5

    There’s a real issue involving the interaction of antitrust law, patent law, and software patents, but this isn’t it. The real problem is patents on standards, either de-facto or formalized.

    It’s always possible to get a very narrow patent, but usually it’s pointless. The exception is when there’s a standard that requires, for interoperability reasons, something to be done in a very specific way. Classic examples are the Hayes modem escape sequence patent (wait, send “+++”, wait) and Microsoft’s patents on long filenames in FAT file systems. It’s also to some extent true of the RAMBUS patent controversy.

    In such cases, the patent is of value solely because the dominant company in the field had established a de-facto standard. Interoperability with the products of the dominant company required use of a very specific patented approach. Only a dominant company can use a patent in this way. Thus, this is properly an antitrust issue, in that it relates to extension of monopoly power.

    That’s the problem to be addressed. It’s come up repeatedly, in very real competitive contexts with high dollar values. If this problem were dealt with, much of the grumbling about software patents would go away.

  8. 4


    Patents can act as a shield from anti-trust for what falls betweens the metes and bounds of the claim, but that is not an excuse to push patent tying to its limit or to to use the granted monopoly to to keep competition from non-patented areas.

  9. 3

    “software patents are controversial” – I think he was trying to say no ALL patents are controversial and we need to oust all of patent law.

    “get-out-jail free card is hard to justify” – I think he meant to say having a patent does not justify freedom from anti-trust liability… Actually, we should allow liability to weaken the value of all patents.

    Got to love ’em Texans.

  10. 1

    Sounds like a bunch of abstractions without any grounding in reality. Oh boy, another Lemley/Moore/Bush/Cheney character(less) person. I’m sure God speaks to him and tells him that we don’t need patents just like God spoke to Bush and Cheney and told them that we do not need regulations for banks.

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